Supply Chain Management: A Vital Role for IT in Health Care Quality Improvement

Variation, Fluctuation, Volatility, Deviation. These terms are anathema to a quality control executive. Imagine that every time you bought your favorite drink, say a diet coke, it tasted different every time, or worse, if you took a pill, say acetaminophen (a pain-killer), you had different constituents in every pill. Wouldn't that be disastrous?

In many industries like manufacturing, engineering, the military and even many service-oriented industries, quality control has been a major part of operations management for a very long time and is just gradually making inroads into the healthcare industry.

Historically, quality in medical care has been discussed in terms of patient outcomes, but with the prevalent drive to reduce costs, health care managers have been investigating innovative ways to drive down cost and improve quality at the same time. What better way to do this than to focus on supply chain management? According to the Association for Healthcare Resource and Materials Management, supplies cost almost as much as 31% of a hospital's expenses on a per case basis, a rise of nearly 40% between 2003 and 2005, as reported by the W.P. Carey School of Health Management and Policy. Supply chain management also directly impacts patient quality, particularly in areas of healthcare that are heavily reliant on supplies like Orthopedics, Cardiac Surgery, etc. This means that any method that can make a hospital's supply chain management more effective will go a long way to improve patient outcomes as well as reduce cost.

Supply chain management is increasingly being used in the healthcare industry to manage inventory levels and improve operational efficiency. An example is the Sisters of Mercy Health System in St. Louis, Missouri which is composed of about 18 acute care hospitals. They employ a Resource Optimization Innovation (ROI) system which is designed to fully automate and integrate all supply chain processes for the consortium. According to the Vice President of Performance Consulting, Marita Parks, this system resulted in increased revenue of $24 million in 2007 with a 7.4 to 1 return on the initial investment. This is not an isolated case as other large hospitals and hospital chains in the US like the Nebraska Orthopedic Hospital and the Johns Hopkins Hospital Group have put in place fully, automated supply management systems to deliver superior results.  See this link for the full article.


Outside the United States, Apollo Hospitals Group, an India Based consortium have also implemented such systems. More impressive however, is the Bumrungrad hospital in Bangkok, Thailand that has been called the "all digital hospital". According to Ravi Aron, the hospital has installed fully automated processes for supply chain management and total quality control, which has assisted the company to post record profits in the 90th percentile compared to its counterparts.

(c) Baldwin Medical

While there is a lot more to be said, it is obvious that information technology offers huge potential benefits in the areas of cost reduction in supply chain management, which makes up a large chunk of hospital expenses. It should not just be seen as inventory control, but rather, a platform to integrate hospital procurement ans supply processes, to avoid redundancy and waste. Of course, we are doing these things to avoid those strange bedfellows I mentioned above: Variation, Fluctuation, Volatility and Deviation and in the process, saving valuable costs.

Supply Chain Management has a lot to offer the healthcare industry going forward, but without doubt, this will be driven by information technology and to borrow, the words of Professor Phil Carter, the supply chain industry of the future will "likely be complex, high-tech, supplier network-driven, and spread out across the globe"